When companies hire top talent away from competitors, they may very well also acquire patent exposure along with their new personnel through the doctrine of assignor estoppel. A recent decision in the Federal Circuit, MAG Aerospace Industries, Inc. v. B/E Aerospace, Inc., demonstrates how broadly assignor estoppel may be applied. In general, assignor estoppel prevents a company that sells a patent from challenging its validity in later litigation. However, under MAG, a company that never owned the patent may also be barred if it has hired an inventor named in the patent.

MAG Aerospace sued B/E Aerospace for infringement of three patents that named one of B/E’s leaders as an inventor. In this case, the inventor conceived of the patents well before joining B/E and had never worked for MAG; he invented the technology during his time at Evac International Oy, which later transferred the patents to MAG.

B/E defended the infringement claim in part by asserting that the patents were invalid. The district court granted MAG summary judgment on that question, ruling that the doctrine of assignor estoppel prevented B/E from challenging the validity of the patents.

Assignor estoppel applies if a named inventor on a patent is “in privity” with the company being sued. In Shamrock Technologies, Inc. v. Medical Sterilization, Inc. (1990), the Federal Circuit held that the doctrine requires a court to consider a number of factors when determining whether this relationship exists, including:

• The inventor’s leadership role at the new employer;
• The inventor’s ownership stake in the defendant company/new employer;
• Whether the accused company changed course from manufacturing non-infringing goods to allegedly infringing activity after the inventor was hired;
• The inventor’s role in the allegedly infringing activities;
• Whether the inventor was hired to start the allegedly infringing operations;
• Whether the decision to manufacture the allegedly infringing product was made partly by the inventor;
• Whether the accused company began manufacturing the allegedly infringing product shortly after hiring the inventor; and
• Whether the inventor was in charge of the allegedly infringing operation.

Such “balancing tests” typically leave companies uncertain about the types of activities that fall outside the scope of the doctrine. Moreover, some of these factors are present in common competitive hiring practices, making assignor estoppel a foreseeable hazard in hiring inventors.

In affirming the district court decision, the Federal Circuit emphasized on the inventor’s involvement in the allegedly infringing activities. This tipped the balance towards finding assignor estoppel. The court gave less weight to countervailing factors, such as the lack of connection between B/E’s decision to make the accused products and the inventor’s hiring (the former preceded the latter), the lack of intentional plans to infringe the patent, the inventor’s negligible financial interest in B/E, and B/E’s good-faith efforts to avoid infringement.

Instead, the court noted the inventor’s lofty title at B/E (namely, Vice President and General Manager), his having been hired specifically to work on the accused products, and B/E’s use of the inventor’s knowledge to conduct the allegedly infringing activities.

Considering the factors that were emphasized, the MAG teaches that companies are vulnerable to assignor estoppel merely by hiring workers with prior employment histories as inventors. Because the bar for running afoul of this doctrine appears low, companies must take special care not to infringe patents on which their employees are named inventors because they may be precluded from contesting the validity of those patents. New and prospective hires should be required to disclose their past patent activities so that employers may design around problematic claims or license patents that cannot be avoided.

Perhaps the most important lesson to be learned from MAG is that the doctrine of assignor estoppel may apply even when the new employer is accused of infringing a patent owned by a third party that never employed the inventor. The due diligence process should track the complete history of the inventor, and the employer should take care not to infringe any of his or her patents, since their validity may be incontestable.